Fry now an "observer" at Mercedes

NEWS STORY24/02/2010

Further details are coming to light about the resignation of Nick Fry from the board of Mercedes-Benz Grand Prix, the company which runs the Mercedes F1 team.

Following Pitpass' breaking of this news last week our business editor Chris Sylt wrote in the London Evening Standard yesterday that a Mercedes spokeswoman has confirmed to him that at board meetings of the company "Nick Fry is an observer but does not have a vote." This is due to Fry's resignation from the board of directors on 26 January and the consequences of it are profound to say the least.

The Mercedes spokeswoman puts it best herself when she says that "certain significant decisions are reserved for the board." According to the rules which govern the company (known as Articles of Association), only the directors have the power to vote on proposals at board meetings. So although Fry is still chief executive he has no voting power at board meetings. It is a huge step-down for him having been a director since 2002 and CEO on the board since 2004.

It is no surprise that the spokeswoman admits that "it is unusual for CEOs not to be statutory directors." As the CEO, Fry may get into discussions with business contacts who propose significant partnerships with the team which require board clearance yet he would have no say as to whether they could proceed.

The Mercedes spokeswoman stresses that it is not a legal requirement under English company law for the CEO to be on the board and she adds that the day to day operation and management of the team is carried out by a committee which includes Fry.

However, to see the significance of Fry's resignation from the board, consider the following business definition of 'board of directors' which states that "the board has the ultimate decision-making authority and, in general, is empowered to set the company's policy, objectives, and overall direction." In addition, the following business definition adds that the board takes "responsibility for the management of an organization." By definition, these are areas which Fry may no longer be involved with.

It raises the question of whether this is an appropriate way to control the team and its budget which is believed to be around £100m.

Mercedes has already come under fire for buying into the team immediately after selling its 40% share in McLaren. Last year Erich Klemm, works council chairman of Mercedes' parent Daimler, said "the staff would have understood better if Mercedes had withdrawn from the expensive F1 business altogether." He added that "in these economically difficult times, the company should invest in better marketing of its real cars."

The latest development caps a tumultuous time for Mercedes and news of this began to come out on Monday last week when Pitpass revealed that Fry had resigned. At the time it was thought that Fry was no longer CEO since it is so rare for CEOs not to be board members due to the lack of control that this brings. Mercedes was quick to point out "that Nick Fry remains at the team in the position of chief executive officer," however it failed to add that he had in fact resigned from the board.

Indeed, last Tuesday, Mercedes' director of motorsport communications Wolfgang Schattling claimed to Sylt that he was not aware of the company filings showing Fry's resignation which led Sylt to directing him to the document online. Following this Mercedes finally admitted that Fry was no longer on the board and now only observes at board meetings. Time will tell if Fry is happy to remain at the wheel despite being stripped of his board position and the control which came with it.